Exchange rate policy

Question 1

Using diagrams, explain what would happen to a country’s currency, other things being equal, if:

  1. There are more tourists into the country.
  2. Foreign speculators sell the currency.
  3. A country’s interest rates rise relative to those of its major trading partners.

Question 2

Assess the possible effects of a sustained fall in the value of a country’s currency on a specific exporting firm in that country. You will need at least one diagram to support your answer.